Correlation Between Compania and Enel Generacion

Can any of the company-specific risk be diversified away by investing in both Compania and Enel Generacion at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Compania and Enel Generacion into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Compania de Transporte and Enel Generacion Costanera, you can compare the effects of market volatilities on Compania and Enel Generacion and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Compania with a short position of Enel Generacion. Check out your portfolio center. Please also check ongoing floating volatility patterns of Compania and Enel Generacion.

Diversification Opportunities for Compania and Enel Generacion

0.43

Correlation Coefficient

Compania  Enel Generacion

Very weak diversification

The 3 months correlation between Compania and Enel is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Compania de Transporte and Enel Generacion Costanera in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enel Generacion Costanera and Compania is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Compania de Transporte are associated (or correlated) with Enel Generacion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enel Generacion Costanera has no effect on the direction of Compania i.e., Compania and Enel Generacion go up and down completely randomly.

Pair Corralation between Compania and Enel Generacion

Assuming the 90 days trading horizon Compania de Transporte is expected to under-perform the Enel Generacion. But the stock apears to be less risky and, when comparing its historical volatility, Compania de Transporte is 1.39 times less risky than Enel Generacion. The stock trades about -0.13 of its potential returns per unit of risk. The Enel Generacion Costanera is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  47,250  in Enel Generacion Costanera on October 27, 2024 and sell it today you would earn a total of  13,050  from holding Enel Generacion Costanera or generate 27.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

Compania de Transporte  vs.  Enel Generacion Costanera

Compania de Transporte

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Compania de Transporte are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Compania sustained solid returns over the last few months and may actually be approaching a breakup point.

Enel Generacion Costanera

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Enel Generacion Costanera are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, Enel Generacion sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Compania and Enel Generacion

The main advantage of trading using opposite Compania and Enel Generacion positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Compania position performs unexpectedly, Enel Generacion can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Enel Generacion will offset losses from the drop in Enel Generacion's long position.

The idea behind Compania de Transporte and Enel Generacion Costanera pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.